2. Placement of Client/Business Funds

Question 1

What are three exceptions to the rule that client money must be paid promptly into the client account?

Answer 1

1. Solicitor holds money as trustee, and paying money into client bank account would conflict with their obligations
2. Client money is received from Legal Aid Agency
3. Alternative arrange agreed in writing with the client

Question 2

What should we be weary of on the exam regarding how a solicitor is to deal with mixed receipts, and why?

Answer 2

Any answer suggesting they must do something, because the approach is flexible

Question 3

What are the two options when a receipt of funds contains both client and business money?

Answer 3

1. Split the cheque
2. Deposit the cheque into either account and transfer the difference

Question 4

Whilst there is currently no guidance on promptly, under the old the rules, where the deposit was made into a client account, how soon must it be transferred to business account and vice versa?

Answer 4

If mixed funds paid in client account: Must be sent to business account within 14 days
If mixed funds paid in business account: Must be send to client account that day or the next working day

Question 5

What is the third option for dealing with mixed receipts specifically when a bill or other written notification of costs has been sent?

Answer 5

The money is considered business money and can be paid into the business account

Question 6

When the firm issues a bill, what can they do if they are holding the amount due in a client account?

Answer 6

Transfer it to the business account

Question 7

What can the firm do after issuing a bill if it has already paid for disbursements, and why?

Answer 7

Reimburse itself from client money, because the money would be used for the purpose it was intended

Question 8

Where a firm does reimburse for disbursements, what two things must they explain to the client?

Answer 8

1. How and when payments are being made
2. That payment will be taken from the client account

Question 9

In these situations, what determines the ledger entries to make?

Answer 9

The flow of capital

Question 10

Where there is a transfer between clients, what are the two entries, and what account is untouched?

Answer 10

1. Debt client account of client A
2. Credit client account of client B

There are no entries needed on the cash account